Financial Development and Tax Revenues: Evidence from OECD Countries

Abstract

Public sector is an important economic unit and affects the economic growth and development through infrastructural and educational investments by public revenues especially consisting of tax revenues. Therefore, countries take institutional, legal and economic measures to increase the total tax revenues. This study researched the impact of financial sector development including banking sector development level and stock market development level on total tax revenues in Organization of Economic Co-operation and Development (OECD) countries during the period 2001-2016 using Westerlund-Durbin-Hausman (2008) cointegration test and Konya (2006) panel boostrap Granger causality test. The results revealed that the impact of both banking sector and stock market development on the total tax revenues changed depending on the countries. Furthermore, causality test results indicated that there was unidirectional causality from both development level of banking sector and stock market to the total tax revenues.